Comparison: GIFT City FD vs NRO FD vs NRE FD

We recently published a comprehensive comparison of the various term deposit options available to NRIs, i.e. GIFT City FD, FCNR Deposit, NRO FD, and NRE FD. Here we’ll do a head to head comparison of GIFT City FDs with the traditional NRO/NRE FDs offered by Indian banks.

What is GIFT City?

GIFT City (Gujarat International Finance Tec-City) has been at the forefront of financial news in the past few years for a host of reasons, such as fintech innovation, a novel regulatory framework, and even its sustainable design.

GIFT City IFSC is envisioned as a global financial and IT services hub, comparable to financial centres like Singapore and Dubai. It is designed to be investor-friendly and offers a simplified process for setting up businesses, with quick approvals and minimal bureaucratic hurdles.

GIFT City Fixed Deposits

These are the fixed deposits offered to NRIs by banks (both Indian and foreign) located in GIFT City. These IFSC Banking Units (IBUs) operate under the regulatory framework of the International Financial Services Centres Authority (IFSCA), an umbrella banking, insurance, investments and PF regulator established by Indian law specifically for GIFT City. IFSCA regulations are designed to offer world-class international financial infrastructure and act as a global gateway for the domestic Indian financial markets.

​Key features and benefits of GIFT City Deposits

1. Duration: Deposit tenure typically ranges from 7 days to 10 years, depending on the offering bank.
2. Currency: Available in major global currencies like USD (US Dollars), GBP (British Pound), EUR (Euro), CAD (Canadian Dollar), SGD (Singapore Dollar), AED (UAE Dirham), etc. depending on the specific bank.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside GIFT City, without any restrictions or permissions required.
4. Taxation: Interest earned on foreign currency fixed deposits in GIFT City is fully tax-exempt in India for NRIs. However, it is important to check the tax laws applicable in the country of residence and any DTAA benefits available for the same.
5. Premature withdrawal: Premature withdrawal is typically allowed. It is important to refer to the specific clauses of the respective banks to understand the penalties, terms, and conditions applicable. There are also non-callable GIFT City FDs offered by the banks which do not offer premature withdrawal facility.
6. Interest rate: Interest rates vary depending on the bank, currency, tenure, and the amount of deposit. The interest rates offered are linked to corresponding lending rates and forex conversion rates in international markets. For USD, the current rate ranges from 1.70% to 6.80%.
7. Key benefits: Globally competitive interest rates without currency fluctuation risk, zero tax dues in India, and ease of repatriation.

NRO Fixed Deposits

NRO FDs are designed to help NRIs manage their income earned in India, such as rent, dividends, pensions, etc. These RBI regulated deposits are offered by most major banks in India. Repatriation of these deposits is regulated as per FEMA (Foreign Exchange Management Act) rules.

Key features and benefits of NRO Deposits

1. Duration: Deposit tenure typically ranges from 7 days to 10 years, depending on the offering bank.
2. Currency: Deposits are held in Indian Rupees, and interest is also paid in Indian Rupees.
3. Repatriation: Repatriation is subject to the limits set by FEMA (not more than USD 1 million for the financial year, including interest on all NRO funds)
4. Taxation: The interest earned is fully taxable in India as per your income slab. Banks will deduct TDS (Tax Deducted at Source) of 30% (plus surcharge & cess) on the NRO deposit interest. However, you can reduce the tax burden if there are any benefits available under the DTAA between India and your country of residence. Any excess TDS deduction can be reclaimed by filing an Income Tax Return in India for the corresponding financial year.
5. Premature withdrawal: Premature withdrawal is typically allowed. It is important to refer to the specific clauses of the respective banks to understand the penalties, terms, and conditions applicable.
6. Interest rate: Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 2.85% to 8.00%.
7. Key benefits: Convenient to grow Indian income at competitive interest rates, and option of availing loan against deposit.

NRE Fixed Deposits 

NRE FDs are offered to NRIs to park their foreign earnings in India in Indian Rupees. These RBI-regulated deposits are offered by most major banks in India.

Key features and benefits of NRE Deposits

1. Duration: Deposit tenure typically ranges from 1 year (RBI mandated minimum tenure) to 10 years, depending on the offering bank.
2. Currency: Deposits are held in Indian Rupees, and interest is also paid in Indian Rupees.
3. Repatriation: The deposit is fully (both principal and interest) and freely repatriable outside India, without any restrictions or permissions required.
4. Taxation: Interest earned is tax-free in India. It is advisable to check for potential taxability in your foreign country of residence.
5. Premature withdrawal: Premature withdrawal is typically allowed, though no interest will be paid on withdrawal before 1 year. It is important to refer to the specific clauses of the respective banks to understand any other penalties, terms, and conditions applicable.
6. Interest rate: Interest rates vary depending on the bank, tenure, and the amount of deposit. These are usually at par with domestic FD interest rates, and updated from time to time based on the relevant RBI rates. Typically ranges from 3.00% to 8.00%.
7. Key benefits: Zero tax dues in India, ease of repatriation, option of availing loan against deposit, and competitive interest rates.

Conclusion

GIFT City Fixed Deposits are a great option if you are looking to avail flexible tenures, special tax treatment, and full repatriation, while avoiding currency depreciation risk. NRO deposits can help you grow your Indian income with flexible tenures. NRE deposits allow you to grow your foreign earnings in Indian Rupees and earn tax-free interest in India with full repatriation benefit. Each deposit option can accordingly be chosen to fit the relevant income source and your overall financial goals.